Franchise Businesses Expect Strong 2015

Franchise businesses are expected to outpace the rest of the economy in terms of growth and job creation this year, according to a report released last week, with the full-service restaurant segment predicted to grow 1.2 percent in 2015 to 37,536 franchised restaurants.

The data come from the International Franchise Association's "The Franchise Business Economic Outlook: 2015," which covers the growth and impact of the franchise industry on the whole. This year’s report says franchise businesses will add 247,000 jobs in 2015—a 2.9 percent increase over 2014—bringing the total number of franchise jobs in the U.S. to 8.8 million.

The report bolstered the views of restaurants that rely on franchise models for expansion, including Houlihan's, which has 77 total units and 43 franchised ones. The brand expects to add two or three franchised restaurants this year as well as one corporate location.

"The report helped solidify what I was already thinking about, as I look out over the economy over the next many years,” says Bob Hartnett, CEO of Houlihan’s Restaurants. “We're starting to see some real tailwinds versus the headwinds we've faced since the Great Recession. The consumer is starting to show some life. I think oil prices will help and interest rates are low, so there's a lot more accessibility to capital today for some franchisees than there was four or five years ago."

When partnering with a restaurant brand, Hartnett says franchisees look for several factors: a solid brand with a long track record that's not at risk of going out of business in the future; the economics and return on the capital investment; and strong systems in place that the franchisee can replicate.

The IFA estimates franchise employment will jump 2.4 percent to 1.1 million employees in the full-service sector, which accounts for 13 percent of the total franchise industry's employment.

The report draws attention to two key factors that could impact franchisees' and franchisors’ wellbeing: the minimum wage debate and the Affordable Care Act. About 85 percent of franchisees say they have been “negatively impacted” by the healthcare law and similarly view the attempt by states and cities to raise the minimum wage as a potential adverse factor.

Hartnett, however, says neither element has greatly affected how Houlihan’s operates its locations. Until the federal government passes a law on minimum wage, the restaurant continues to adjust to local markets that have their own mandates by adjusting menu prices and labor.

The quantity of franchise establishments has steadily risen as the economy's strength returned from 2012 onward. This year, the IFA predicts a 1.6 percent increase in the number of franchised establishments from last year, which would bring the total to 781,794.

The output in billions of dollars has also grown since 2010. The IFA expects franchise output in 2015 to climax at $889 billion—compared to $675 billion just eight years ago—representing a 5.4 percent jump from last year's output. Franchise business will make up 5.1 percent of the total U.S. economy's GDP, the IFA estimates—which is greater than the 4.9 percent GDP increase forecasted for the economy as a whole.

“You’re going to see a continuing steady improvement in the economy,” Hartnett says. “We’re not in hyper growth, but it’s steady and inflation is in check. I think the next many years, it’s going to be a lot easier than the last six or seven.”